Europe stocks eke out gain; Draghi talks easing options

Deutsche Bank shares fall after ratings downgrade

LONDON (MarketWatch) — Stocks across Europe finished with minor gains Thursday, but were unable to hold on to the higher levels they reached after the European Central Bank’s chief said policy makers were open to considering further easing measures.

There’s been some pressure on policy makers to take action against low inflation. The ECB, meanwhile, has to consider a slate of improving manufacturing data and an overall pickup in economic growth.

Draghi “did absolutely bend over backwards to sound as dovish as he possibly could in this conference. There’s no doubt about it that he’s vigorously employing the tactic of cheap talk, in the sense that talk is cheap compared to actions,” said Nick Beecroft, senior market analyst at Saxo Bank, in a telephone interview.

“It was news to hear that QE is getting that legitimacy, so to speak, within the [ECB’s] mandate,” he said.

Draghi also said policy makers talked about the possibility of negative deposit rates, under which banks may be encouraged to make loans to borrowers instead of depositing any surplus of money overnight at the ECB.

Ahead of Draghi’s news conference, the ECB met widely held expectations by holding its key lending rate at 0.25%. The central bank also held its deposit rate at 0% and the marginal-lending rate at 0.75%.

Economists have warned of the threat of deflation or persistently low inflation as annual inflation in the euro zone has declined to 0.5%, which is below the ECB’s target of near but just below 2%.

Beecroft believes the ECB, depending upon data, will in June opt to enact a negative deposit rate. “That would have the corollary effect of taking the euro down quite effectively,” which would be helpful for exporters and the inflation outlook, he added. The euro
EURUSD, -0.0455%fell against the U.S. dollar after Draghi’s comments.

The Stoxx Europe 600 had swayed between small gains and losses throughout the session. It again narrowed its advance after the start of trading in the U.S., where government data showed weekly claims for unemployment benefits jumped by 16,000 in the last week of March, to the highest level in a month.

The weekly jobless-claims data arrived ahead U.S. monthly jobs figures, due Friday, with investors to look at the impact of inclement weather on the labor market and on the economy overall.

Among country-specific indexes, Germany’s DAX 30
DAX, +0.46%
settled up by 0.1% at 9,628.82, but it had risen by as much as 0.7% during Draghi’s news conference. Regarding the Deutsche Bank re-rating, final regulatory rules on additional valuation adjustments for Europe will likely reduce the German bank’s capital by 2.2 billion euros ($3.03 billion) by the second or third quarter, according to J.P. Morgan Cazenove. “This decline is material for DB, considering its relatively tight capital position and market concerns regarding capital at risk,” its analyst Kian Abouhossein said in a note to clients.

France’s CAC 40
PX1, +0.72%
pushed higher by 0.4% to end at 4,449.33, the third straight day of gains for the index. On the economic front, market-research group Markit said expansion in France’s service sector in March ended four months of decline, driven by a rise in incoming new work. The activity index reached a 26-month high at 51.5, versus 47.2 in February.

The U.K.’s FTSE 100
UKX, +0.41%
ended 0.2% lower at 6,649.14, with losses for most finance issues and metal producers. Advancers were led by Aberdeen Asset Management PLC
ADN, +0.19%
fashion house Burberry Group PLC
BRBY, +2.88%
and Kingfisher PLC
KGF, +0.39%
Kingfisher shares rose 3% as the home-improvement retailer said it’s in talks to buy Mr Bricolage, a move that would stretch its presence in the French market.

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